Maine Compass: Maine hospitals shouldn’t be forced to pay more taxes

In 2016, voters enacted the Medicaid expansion law that will provide health insurance coverage to tens of thousands of uninsured Mainers.

Hospital support for expansion is primarily rooted in the benefit to uninsured Mainers. Health insurance provides people with the full array of tools they need to improve and maintain their health.

Without insurance, the uninsured often get care from a hospital emergency room for free. Hospitals provide over $120 million worth of such charity care each year to poor Mainers. This is in addition to the $175 million per year in medical bills that hospitals waive for the nearly-poor who also can’t afford to pay them.

Combined, Maine’s hospital free care costs are over 5 percent of the hospitals’ total revenues.

Our primary hope for expansion is that the lives of Maine’s uninsured population will be improved with increased access to the right care, at the right time, in the right setting. Sometimes that is a hospital emergency room, but often it’s not.

A secondary hope is that Medicaid expansion will help improve the tough financial situation faced by Maine’s hospitals.

Currently, over half of Maine’s 33 community hospitals are losing money. The aggregate operating margin of hospitals in Maine was 1.3 percent in 2017. This was an improvement over 2016, when margins were a mere 0.3 percent.

In rural Maine, things are very difficult, and the hospitals are losing money.

Hospitals in Maine are nonprofits and are committed to treating all Mainers regardless of their ability to pay. Hospitals will always give away a significant portion of their bottom line, but like any enterprise that hopes to continue operating, they can’t give it all away.

There is a gross imbalance between what hospitals are providing in free care (5 percent) and the amount retained by hospitals (1.3 percent). And again, 17 hospitals have negative margins — they are losing money.

Expansion will help get these two items more in balance.

There has been talk about increasing the hospital tax as a way to pay for the state’s costs associated with Medicaid expansion. We oppose this idea.

The state already imposes a tax on hospitals. The tax is over $100 million per year. It has increased 70 percent in 10 years. The hospital tax was hiked by the state as recently as last summer, even though the state had a revenue surplus and there were no shortfalls in Medicaid! Our members need a break from further increases.

But the primary objection to forcing hospitals to pay for the state’s share of Medicaid expansion costs is simply that hospitals already did pay.

Normally, the state is responsible for 33 percent of the cost of Medicaid and the federal government is responsible for the other 67 percent. For most of the Medicaid expansion population, the state’s share is only 10 percent rather than 33 percent. The difference was covered by hospitals.

Hospitals had their Medicare reimbursements cut in order to fund the states’ share of Medicaid expansion costs.

The terms of Medicaid expansion were outlined in the Affordable Care Act (also known as Obamacare), which was enacted eight years ago. The ACA spent money on things like Medicaid expansion, but it also raised funds for the government by increasing taxes and cutting spending.

One of the areas where the ACA cut spending was on hospital reimbursements in the Medicare program. Hospital reimbursements in the Medicare program are lower than they would have been had the ACA not been enacted.

The argument in favor of that policy was that the hospitals’ Medicare cuts would be offset by their gains from Medicaid expansion. It would be a “wash” of sorts.

In Maine, the Medicare cuts (totaling hundreds of millions of dollars) have been felt, but the hospitals have seen no corresponding benefit from Medicaid expansion. They got all of the pain without any of the offsetting gain.

Hospitals need Medicaid expansion just to get back to even under the terms of the ACA. Medicaid expansion will not provide hospitals a financial windfall; it simply reduces their losses.

Any further tax increase on hospitals would be both unfair and unsustainable.

Furthermore, the Legislature enacted a plan to fund the initial costs for expansion. It was a reasonable first step and had broad bipartisan support. That is the funding plan that should be adopted.

After Medicaid expansion, there will still be some uninsured, there will still be a need for charity care and hospitals will continue to fill the gaps that remain.

However, expansion will allow many Maine hospitals to get out of the financial red and into the black. That is a good thing for hospitals, patients and the broader economy.

But it’s mostly a good thing for the uninsured who will get access to health care from more than just the hospital emergency room.

Steven Michaud is president of the Maine Hospital Association in Augusta.

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